Who benefits when Social Security changed?

Arieh_L__Popik_with_his_wife,_parents,_children_and_grandchildren_in_1955Changes needed for Social Security to be better funded often ignore a simple point – who benefits from the change? Short answer – anything done, to improve funding, benefits our children and grandchildren.

Social Security is a multi-generational program … people forget this when they view it as a government program and mentally picture government (bad) and forget about how it is actually designed to work.

People sometimes forget that Social Security operates under the concept that workers provide funding for those receiving benefits who tend to be retired. Those receiving benefits are older, while those providing the funding are younger and doing so through the payroll tax (FICA).

What’s the issue? Quoting the 2014 Trustees report: “After 2019, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of combined trust fund reserves (my emphasis) in 2033, the same year projected in last year’s Trustees Report. Thereafter, tax income would be sufficient to pay about three-quarters of scheduled benefits through the end of the projection period in 2088.”

As a side note: Baby boomers are people born during the demographic Post–World War II baby boom between the years 1946 and 1964. Someone born in 1946 will be 87 in 2033; born in 1964 will be 69 in 2033. Boomers also had children who are generally termed echo boomers. Thus funding will continue to be an issue when that, also large, echo boom generation moves through old age. What age will you be between 2033 and 2088? Over 62 – then those under 62 are supporting your benefit payment.

The funding is not going broke, but it is short of money. The ~25% of benefits that are not funded through FICA tax income needs to come from somewhere. If this is not well thought through, a situation that got other countries into trouble may happen where outsiders are asked to fund the shortfall (i.e., U.S. borrowing more).

A key consideration is that, in general, proposal for change seeks to shore up the FICA tax income shortfall so retirees as a whole may continue to receive some sort of safety net income as the program was designed.

Those on retirement benefits – in other words, those 62 and older – should support any change to the program that extends its viability. Often, it is these same people who oppose change, and this is the problem with opposition from this group … their benefits are not subject to change in most proposals. So in truth, these people are opposing improving the viability of the program for their children and grandchildren. Is this really what they want?

There are many changes under consideration. What we should all consider is that the reason for any change is to improve viability of the program for our children and grandchildren. Those about to receive, or already receiving, benefits won’t see their Social Security change under most proposals – they’re grandfathered.

Moral of the story: Opposition to change has an effect on your children and grandchildren.

Photo: See page for author [CC BY-SA 3.0], via Wikimedia Commons

About Larry Frank, Sr.

Larry R Frank Sr., MBA, CFP®, is an experienced financial advisor and a published author on Retirement Planning Research. Have a financial question? Click Here to Ask Larry

One Response to Who benefits when Social Security changed?

  1. Larry Frank, Sr. November 2, 2015 at 8:47 am #

    The new law ” Bipartisan Budget Act of 2015 * ” has removed two prior strategies that couples used to have since 2000. “File and suspend” and “Restricting the application to spousal benefits” are no longer viable strategies. The two strategies above were removed by the new law as “low hanging fruit” (most obvious opportunities because they are readily achievable and do not require a lot of effort) on Congress’ efforts to save money in the Social Security trust fund structure.

    Strategies for the divorced or survivors are still viable, as are many other claiming strategies however … so all is not lost!

    *Subtitle C: Protecting Social Security Benefits. Sec. 831. Closure of unintended loopholes.

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